News

G-20 May Soon Get Clearinghouse Stress-Testing Plan, European Official Says

By Neil Roland
June 7, 2016, MLex

Global authorities may propose a clearinghouse stress-testing framework for regulators to apply across the world, said Benoit Coeure, a European Central Bank executive board member. The plan would be submitted at the Sept. 4-5 summit of the Group of 20 world leaders in China. He also said authorities will propose guidance for clearinghouses...

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Fed Under Pressure to Rethink TLAC Rules

By Peter Madigan
May 25, 2016, Risk

Even by Wall Street standards, $363 billion is a big number. That is the estimated shortfall in outstanding long-term debt that needs to be made up by the eight U.S. global systemically important banks (G-SIBs) by 2019, in order to satisfy their total loss-absorbing capacity (TLAC) requirements.

The deficit, calculated by a group of five US bank trade associations, is three times the size of the Federal Reserve’s own estimate. In its October 2015 rule, proposing the TLAC requirements, the U.S. central bank estimated the collective TLAC shortfall among the eight U.S. G-SIBs would be only $120 billion – a gap the regulator “assumed that covered bank holding companies (BHCs) would fill by replacing existing ineligible debt with eligible external long-term debt”.

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Swaps Liquidity Continues to Fragment

By Helen Bartholomew
May 10, 2016, IFR

Activity in the U.S.$493trn swaps market continued to fragment along geographic lines through 2015, with over 91% of cleared euro interest rate swaps in the interdealer market transacted between European counterparties in December, according to analysis by ISDA.

The latest study, based on monthly regional clearing data from LCH.Clearnet, shows that the proportion of euro IRS traded solely between European dealers has increased from 70% in September 2013, just prior to the introduction of new rules that forced U.S. market participants to trade most vanilla interest rate swaps over registered swap execution facilities.

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Derivatives Traders Adopt Rules to Clear European Credit Indexes

By Katie Linsell
May 9, 2016, Bloomberg

European Union regulation comes into force on Monday that will require traders to start moving the region’s credit derivatives benchmarks through central clearinghouses. 

Group of 20 leaders decided after the financial crisis that over-the-counter derivatives should be traded through clearinghouses where possible to lessen the effects of default and reduce systemic risk. Central counterparties don’t take a position on trades and stand between buyers and sellers in the $12.5 trillion credit derivatives market.

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More E.U. Banks May Come Under Scope of Global Bail-In Rules

By Huw Jones
April 29, 2016, Reuters

New rules requiring the world's biggest banks to issue bonds for shoring up capital in a crisis may be rolled out to the next tier of lenders in the European Union, a senior E.U. official said on Friday.

The Group of 20 economies (G20) has approved so-called total loss-absorbency capacity rules, or TLAC, that will require big banks such as Deutsche Bank, HSBC and Morgan Stanley to issue debt that can be "bailed in" or written down to bolster depleting core capital.

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Swaps Margin Rules Show Fragmentation

By Helen Bartholomew
April 14, 2016, 
IFR

Global regulators may have missed a rare opportunity to create unified global rules for collateralization of over-the-counter derivatives trades that are not cleared by central counterparties, leading to asymmetric requirements that market participants are struggling to manage ahead of the September 2016 implementation date.

“Margin rules seemed to be a real opportunity for global regulators to truly have a single rule,” said Keith Bailey, managing director for market structure at Barclays, speaking on a panel at ISDA’s Annual General Meeting in Tokyo.

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ICMA: Britain Faces No Less Financial Regulation Outside E.U. than in

By John Geddie
April 8, 2016, 
Reuters

Britain's capital markets would probably face the same degree of regulation even if voters opt leave the European Union in a referendum in June this year, banking lobby group ICMA said.

The group, often a critic of the regulatory crackdown on markets since the financial crisis, said Britain would need to comply with E.U. oversight to obtain the best terms of access to the single market after Brexit.

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FIA Pledges to Continue Working with Basel Committee on Impact of Capital Requirements

April 6, 2016, Automated Trader

FIA welcomed the Basel Committee's consultation on proposed revisions to the leverage ratio today, but expressed disappointment that the new framework does not include an offset for initial margin. The Committee called for data to further evaluate this critical issue, and FIA pledged to continue working with regulators and industry members to address on the impact of the leverage ratio on clearing.

"It's critical that we get the calculation for the leverage ratio right," said Walt Lukken, president and CEO of FIA. "The leverage ratio should not stand in the way of the G-20's goal of reducing systemic risk through greater adoption of central clearing. Our concern is that this will make it more difficult for market participants to hedge risk using cleared derivatives. Worse, it may harm the safety and resilience of our clearing system."

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Analysis: Basel Leverage Ratio Paper Spooks Banks

By Luke Jeffs
April 6, 2016, 
FOW

The announcement on Wednesday that the Basel Committee on Banking Supervision had opened a consultation on its controversial leverage ratio may have looked promising to the world’s top investment banks.

But any optimism would have quickly evaporated as the derivatives clearing firms studied the consultative document and realised the plan did not go as far as they might have hoped.

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Germany on Track for New E.U. Clash Over Bank-Failure Rules

By Birgit Jennen and Boris Groendahl
April 6, 2016, 
Bloomberg

Germany is on a collision course with the European Commission over enforcing bank-failure rules the European Union introduced two years ago to end an era of taxpayer bailouts.

The finance ministry in Berlin is warning against “watering down” the rules, including a requirement to impose losses on investors and the introduction of powerful authorities overseeing bank failures. Its warning comes shortly after a discussion paper of commission staffers suggested softening those rules in upcoming legislation.

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Global Regulators Move Closer to Regulating Fintech

By Huw Jones
March 31, 2016, 
Reuters

Global regulators have moved closer to regulating the fledgling fintech sector, which includes blockchain technology that supports bitcoin, to ensure the industry's rapid growth does not pose any risks to the financial system.

The Financial Stability Board (FSB), which met in Tokyo on Thursday, has agreed on a framework for categorizing different components of fintech and assessing their potential risks.

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Basel Watchdog Adopts Softer Rules on Banks' Rate Risk

By Taro Fuse and Sumio Ito
March 30, 2016, 
Reuters

Global banking regulators will avoid forcing banks to set aside money to cover the risk of higher interest rates, two people with direct knowledge of their deliberations said, easing concerns among some banks about the potentially high costs of holding government bonds and long-term loans.

The Basel Committee, a body of banking supervisors from nearly 30 countries, this month reached a basic agreement to let local regulators decide on set-asides to protect against rate shocks, avoiding a stronger proposal for minimum capital requirements, the sources said.

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ECB's Constancio Backs Stricter Curbs on Fund Managers

By Huw Jones and Francesco Canepa
March 21, 2016, R
euters

Stricter curbs are needed on the 10-trillion-euro asset management sector to control leverage and stop any heavy outflow of money rocking the financial system, the European Central Bank's vice-president said.

Monday's comments from Vitor Constancio mark the latest signal from regulators that the growing asset management sector will face far closer scrutiny in coming years, as risks shift from the banking sector to so-called shadow banking.

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Global Watchdog Flags Slow 'Too Big to Fail' Bank Rule Adoption

By Huw Jones
March 18, 2016, R
euters

Many countries have not yet introduced laws allowing regulators to write down bank's debts to avoid taxpayer bailouts and prevent them being "too big to fail", the world's top financial watchdog warned on Friday.

The Financial Stability Board (FSB), which can "name and shame" those which do not yet comply with its rules, said member countries that do not yet have these laws include Argentina, Australia, Brazil, Canada, China and Chinese territory Hong Kong, India, Indonesia, Korea, Mexico, Russia and Saudi Arabia.

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Next Financial Crisis Could Overwhelm World's Defenses, IMF Says

By Andrew Mayeda
March 17, 2016, 
Bloomberg Business

The global financial safety net has become increasingly fragmented, making it harder to respond to crises in a world roiled by volatile capital flows, International Monetary Fund staffers warned.

Defenses haven’t kept up with the growth of external debt in recent years, the Washington-based fund said in a report released Thursday. As a result, a system-wide shock could overwhelm the world’s crisis resources, which include nations’ foreign-exchange reserves, central-bank swap lines, regional funds such as the euro area’s European Stability Mechanism, and the IMF itself, the lender said.

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Treasury Official Calls for Greater Foreign Bank Policies

By Rachel Witkowski
March 7, 2016, The Wall Street Journal

International regulators have made significant headway in putting in place regulatory changes in the wake of the 2008 financial crisis, but the U.S. Treasury is continuing to push for more policies to establish a level playing field between foreign and U.S. banks, said Treasury Under Secretary for International Affairs Nathan Sheets.

Mr. Sheets, who attended the Group of 20 meeting of finance ministers and central bank governors in China late last month, said the officials’ agenda remains focused on bank capital and leverage, the resolution of systemically important financial institutions, stability in the shadow banking system and regulating derivatives.

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EC Approves Credit Derivatives Clearing

By James Rundle
March 2, 2016, Financial News

The European Commission has adopted long-awaited rules that will require certain kinds of index credit default swaps to be centrally cleared for the first time.

The changes will ensure that much of the over-the-counter market falls into line with a 2009 G20 mandate, which stipulated that all standardized OTC derivatives should be centrally cleared.

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Will Japan's Negative Rate Backlash Affect Its Central Bank's Next Decision?

By Toru Fujioka and Masahiro Hidaka
February 29, 2016, Bloomberg Business

A backlash of criticism and confusion after the Bank of Japan’s surprise introduction of a negative interest rate may make it less likely that Governor Haruhiko Kuroda will push the benchmark lower this month.

So say analysts at banks including at Credit Suisse Group and Credit Agricole, noting criticism at the Group of 20 meeting, in Japan’s parliament and in opinion polls. Lawmakers called Kuroda to testify on 15 days since the decision, which also sparked public comments in Shanghai from a European policy maker.

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Regulators Edge Closer to CCP Resolution Plan

By Lizzie Meager
February 24, 2016, 
IFLR

Clearinghouses – or central clearing counterparties (CCPs) – could be the next too-big-to-fail institutions. Post-crisis regulation insisting that over-the-counter (OTC) derivatives trades must be cleared through them has pushed an extra $100 trillion into the system in interest rate swaps alone, drastically increasing the systemic risk if one were to fail.

The European Commission is preparing new rules on the matter due in September, and the G20 is also investigating. It decided to explore the issue in 2010, yet is still struggling over what should happen – let alone who should pay for it. Everyone on every side has their own view: not them.

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Frontloading Starts Under EMIR

February 23, 2016, Global Investor Magazine

Major swaps dealers began the controversial concept of 'frontloading’ this week, a unique requirement to Europe’s approach of migrating derivatives trades from bilateral to central clearing.

The rationale behind frontloading is that certain OTC derivatives trades can be captured under the clearing scope as soon as possible, even before new clearing rules under European Market Infrastructure Regulation (EMIR) apply in practice.

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